Interesting tax facts

As you consider next month's vote and gouge your eyes out trying to decipher fact, fiction, hyperbole and lie in these horrible debates, here are a few things I've learned recently and found interesting:

1) Under either candidate, 43-44% of tax filings would result in zero tax liability. To be clear, this does not mean they get a refund - it means they would pay absolutely zero income tax. Currently this number is 33%, up from a historic norm of 21%. Hard to cut taxes on the poor when 44% of those filing returns don't pay them.

a) Implication #1 - Tax policy and social policy have comingled to an enormous degree. Over a third of all people have no sense for the cost of government. It used to be that people would pay taxes and then receive checks for programs - these might net out. Now they net out pre-tax, which means fewer checks to cut but also means income tax is not meaningful for most. The irony is the perception that cutting taxes on the poor will stimulate the economy or substantially help the poor. Not really so.

b) Implication #2 - Federal tax revenue is now far more unpredictable and volatile since it is now more reliant on taxation of the wealthy, which is harder to predict - large returns are frequently dependent upon one time events (capital gains realization) or broader economic conditions. As the economy staggers, tax revenue plummets.

2) Housing is the most subsidized industry by tax revenue, to try to make sure everyone can afford a home. Are we seeing the downside of trying to make sure everyone owns a home, even if they can't afford it?

3) In 2006, Exxon Mobil had earnings of $39.5B, which has made it a target for the windfall tax advocates. That's a lot of money, huh? We should tax these guys more heavily? How much did they pay in taxes in 2006, by the way? $27.9B. Hmmm. That's a pretty high % already isn't it? That's more tax that 50% of taxpayers paid collectively in 2006. As I've noted before, their earnings are about 10%, which is about the same as many good companies, including GE, which Obama would like to not tax, but subsidize, as they invest in more green energy (which Exxon Mobil's also doing).

4) 4 out of 5 Americans consider themselves middle class. Now you know why politicians talk about cutting taxes for the middle class. Oh, 2% of Americans consider themselves upper class.

5) The highest income tax bracket isn't all that high by historic standards. It was 94% during WWII and 91% for many years thereafter. Who brought it down the levels we're acquainted with? A famous Democrat named JFK.

Editorial: Biden hit a nerve with me last night in the veep debate (just one). The word I've been trained and then sensitized to avoid is "fair". Usually when someone says something isn't fair, it just means they don't like it. I have six kids and hear it all the time. It doesn't describe the problem, it simply applies a person's judgment on whether they find it favorable. In Biden's, he said that increasing taxes on the wealthy to decrease taxes on the middle class is fair, not redistribution. By definition, obviously, it is redistribution - increasing taxes on one group of income earners so you can lower it on another group is inherently a policy of redistribution (see: Robin Hood). Whether redistribution is desirable or not is arguable, whether it is "fair" is hard for me to understand. If it is "fair" that we need greater wealth redistribution, facilitated by the tax code, my next question would be - when is it fair enough? Remember this graph that I've showed before? How steep should this slope be before it feels fair enough?